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Small businesses can raise capital for their business growth and expansion through Private Equity Funding. Private equity firms are significant sources for funding start-up businesses. ‘Business angels’, usually retired businessmen, provide the finance. They invest in the business on the strength of an entrepreneur’s business plans, knowledge, trust and negotiations with him. You can find the right business angel to put wings to your entrepreneurship dreams with a good capital for start-up.What is Private Equity?• Private equity funds invest in small or mid-cap companies only.• They demand a growing revenue stream at different stages of the enterprise.• They are essentially invested for the long term and want dividends and regular cash flows.• They buy the equity from other shareholders. This allows the founders of the company and investors to recoup some of their investments.Raising Private Equity:An investor looks for certain criteria before providing the equity for your business.• A Good Rate of Return: An investor looks for a good compensation and return for his capital he is risking on your venture. An offer of directorship with perks and fee will make the risk lucrative. It will give him a chance to earn some money on his capital and remain in touch with the new business.• Exit Route: Build a workable exit routes for the investor to retrieve his money if he needs to. This builds confidence in your business plan.• Trust: Experience, good credit rating, business skills, enthusiasm and determination gives a feeling of security to an investor. It ensures that money is safe. After all, business is about people.• Security: Collateral or assets against capital give a feeling of security to the investor. A seat on company board will give him a sense of control on his capital. The company too would benefit from the investor’s expertise.• The Risks: Let the investor know the realistic business plan and potential pitfalls of the business. He should know the good and bad points of the venture and your plans to meet those contingencies. This will give him confidence in your ability to handle the business sensibly.• Parsimony: Invest the money prudently. Show the investor how wisely you are investing his capital in your business. Ensure tight control on money. The less capital expended to earn the income the better the percentage return on his shares.• Realism: Do not be overly optimistic of the returns and profit margins in a short time. That will create doubt of your business skills as no company profits so fast. Keep the rising costs, labor, material and other hidden costs while accounting for business growth. Pay your self-realistic wages as no investor likes to see his money being spent too trivially. Have control and confidence in your business plan.Private equity is today a very significant source of capital for small and mid-cap firms. The investor must be assured that the capital being deployed by him will yield the returns he is looking for.
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